German optimism boosts Europe stocks

DAX 30 jumps 1.4% to highest close since January 2008

LONDON (MarketWatch) — European stocks on Friday closed in positive territory for a third straight day, after upbeat German business data and encouraging comments from European Central Bank President Mario Draghi cheered investors.

The Stoxx Europe 600 index
SXXP, +0.03%
gained 0.3% to 289.72, closing at its highest level since February 2011. On the week, the benchmark settled 0.9% higher after some volatile trading days. Germany’s DAX 30 index
DAX, +0.46%
closed at its highest level in five years.

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“We have seen the market most of this week move up off the lows as buying has been heavier on the dips. The bullish nature of the market in Europe and U.S. shows that confidence is returning and with the shrugging off of poor data many investors are quick to change bias and this leads to more volatile swings,” said Atif Latif, director of trading at Guardian Stockbrokers.

“Notwithstanding all the positive themes, we do however remain cautious over the medium term and do expect some catalysts to come into play that would merit a healthy correction,” he added.

Shares of Nokia Corp.
NOK1V, +0.08%NOK, +0.28%
posted one of the biggest losses in the Stoxx 600, down 6.6% to 3.08 euros ($4.12), adding to a 5.5% Thursday loss on the back of a mixed earnings report. UBS cut the Finnish handset maker’s price target to €2.80 from €3.

On a more upbeat note, shares of STMicroelectronics NV
STM, -0.18%
gained 4.3%, after Exane BNP Paribas lifted the chip maker to outperform from neutral.

Draghi, German data lend support

On a broader basis, investors tracked comments from Draghi as the ECB boss spoke at the World Economic Forum in Davos. Draghi said that economic activity was stabilizing, while also foreseeing a recovery in the second half of the year. See: Euro hits 11-month high on LTRO paybacks.

Separately, the ECB said banks that participated in the three-year, long-term refinancing operations, also referred to as LTRO, will next week repay €137.2 billion of the more than €1 trillion in loans provided in December 2011 and February 2012. See: Europe banks begin repaying LTRO cash.

Investors also focused on the latest data set from Germany. The Munich-based Ifo Institute’s January business-climate index took an unexpectedly strong jump to 104.2 from 102.4 in December, signaling that a widely-suspected contraction in the fourth-quarter may have come to an end. See: German Jan. Ifo jump may signal end of contraction.

Ralph Orlowski/Getty Images

The ECB says banks will next week repay around €137 billion borrowed under LTRO.

“January’s rise in the German Ifo business survey provides further hope that Q4’s estimated sharp fall in GDP will be a one off,” Ben May, European economist at Capital Economics, said in a note.

“Nonetheless, given that the effects of the recent appreciation of the euro are unlikely to have been fully felt by exporters, it is too early to conclude that Germany will record a strong and sustained expansion in 2013,” he said.

The DAX 30 index rallied 1.4% to 7,857.97, the highest close since January 2008. On the week, the index gained 2%.

“It is now open season for speculation over a triple-dip recession. In other words, markets will be scrutinizing Q1 data for signs of another contraction. At this juncture it looks as though this should be avoided,” said Philip Shaw, chief economist at Investec Securities in a note.

Shares of Credit Agricole SA
ACA, +0.77%
picked up 2.3%. The bank said it would take a hit of around €160 million euros due to a €651 million impairment charge at the regional-bank level, but that it wouldn’t affect its consolidated results or solvency ratios. See: Crédit Agricole warns on Q4 profit.

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